UK research firm says PH gov’t to hit inflation target

As food price increases slowed thanks to government actions ensuring adequate supply, London-based Capital Economics sees inflation returning to within the government target of 2-4 percent by mid-2019.

In a Jan. 4 report titled “Inflation in the Philippines falls back,” Capital Economics also reiterated its view of a looming interest rate cut.

“A further sharp drop in inflation in the Philippines in December supports our view that the central bank (Bangko Sentral ng Pilipinas) will start to loosen monetary policy soon,” Capital Economics said.

When headline inflation hit over nine-year highs last year, the BSP responded by jacking up interest rates by a total of 175 basis points.

Finally on Friday, the government reported the inflation rate in December eased to 5.1 percent, the lowest since May 2018’s 4.6 percent. Compared with November, prices in December declined 0.4 percent.

The economic team said “the worst seems over” as far as the inflation crisis was concerned, although the government would “continue to be vigilant of possible risks.”

The economic managers said they would exert all efforts to stabilize prices and bring inflation within the target range.

According to Capital Economics: “A breakdown of the data shows that falling transport and food price inflation were again the main drivers behind the fall. We expect both these factors to push inflation down further over the coming months, and for inflation to drop back to within the BSP’s 2-4 percent target by the middle of the year.”

“With price pressures set to ease further and the economy slowing, we think the central bank will start loosening policy before too long. We currently have two 25-basis point cuts pencilled in for 2019, with the first cut likely to come in the second quarter,” it added.